Courtesy file photo
Legislation deemed ‘bad for all businesses and consumers’
By Tara Fischer, Staff Writer
Lawmakers in Annapolis are considering a new plan to generate revenue by decreasing the Maryland sales tax from 6% to 5% but extending the fee to include additional services, and Worcester County officials are leery of the financial effects.
“This is essentially an indirect citizen tax because everyone uses services,” Worcester County Chamber of Commerce in Ocean Pines President Kerrie Bunting said of the proposed Sales and Use Tax-Rate Reduction and Services bill. “It is bad for all businesses and consumers.”
Pros and cons
The amendment would tax services not currently affected by traditional sales tax, such as advertising, landscaping, accounting, dry cleaning, funeral services, and media streaming. The House Ways and Means Committee heard the bill on March 11.
Proponents of the legislation argue that it would generate roughly $3 billion in revenue sources for state priorities, such as the Blueprint for Maryland’s Future, the costly education policy that aims to enrich student learning by increasing school system funding by $3.8 billion each year over the next ten years, and the Transportation Trust Fund.
The current writing of the legislation excludes childcare, grant making and religious organizations but defines taxable services as “any activity engaged in for a buyer for consideration.” This includes telephone answering services, credit reporting, pay-per-view television, security systems, and the “fabrication, printing, or production of tangible personal property or a digital product by special order,” among others.
Critics of the bill worry that it would disproportionately affect small establishments.
Despite promises of increased revenue, Bunting said more important is the impact the legislation would have on small businesses and consumers.
“If this proves anything, we need to pay attention to what happens at the state level,” Bunting said. “People think it has nothing to do with them, but it does. The more we are engaged in the legislative process, the more our voices are heard. If you do not pay attention, you cannot complain.”
GOP, chamber opposition
Dozens of business owners and hesitant customers have rallied in Annapolis to oppose the proposed law.
Republican lawmakers are especially critical of the legislation, particularly its inclusion of taxable funeral services. Many argue that the services should not be considered for revenue generation.
“There are two things certain: taxes and death. Now, they’re going to get money out of my pocket when they put me in the ground,” Del. Robert Long (R-6) said at the hearing.
Moon relented that many services should be reconsidered and that the suggested law should be open to modifications.
House Bill 1515 is a carryover from House Bill 1628, which was presented during the 2020 legislative session but failed to pass. The previous act also proposed lowering the sales tax from 6% to 5% and expanding it to everyday services, like legal, realtor, auto and home improvement.
At the time, the Maryland Chamber of Commerce wrote a letter to the House Ways and Means Committee requesting an unfavorable report. The chamber argued extending sales tax to services is “discriminatory against small and fledgling businesses.”
The letter states, “Small businesses rely on outside services (legal, accounting, etc.) while larger companies can utilize in-house expertise for these newly taxable services at no additional cost. As a result, small and start-up businesses will incur additional costs to operate in the state.”
Chamber members worried the legislation would increase the potential for pyramiding taxes. If goods and services are taxed more than once, it would lead to higher consumer costs. The chamber also reasoned the bill could put Maryland businesses at a “competitive disadvantage relative to other states” that do not tax services, and geographical challenges would make it difficult to enforce.
“If an accountant is serving a client who owns gas stations in Maryland, Virginia and Washington, D.C., it is unclear what states the service is being delivered from and what state the service is delivered to,” the letter reads.